AVEVA ProCon FPSO Europe Congress 2016

FPSO Congress

ROCK, PAPER, SCISSORS

A Case Study on complementing cost-savings

with strong governance and capital discipline.

February 2016

Introduction to 8over8

FPSO 2nd Annual Congress | 2016

• Founded in 2000

• Acquired by Aveva AVV (LON) in Jan 2015)

• Combined Revenue of £345m (FY 2014)

• Software author of ProCon delivering a Complete Contract Control solution

to complex projects in:

• Oil & Gas (upstream, midstream & downstream)

• EPC

• Petrochemicals, Chemicals

• Mining & Minerals

• Utilities

• Complex Infrastructure ( Rail, Airports, Smart Cities, Construction)

2

250 Capital projects, $500bn of managed assets => up to 5% saving on project costs

Context: The Cost /Price Gap facing the industry

FPSO 2nd Annual Congress | 2016 3

Re-base the cost and price index at 100 in 2004

Price Index now below 100

But Cost Index now above 170!

Context


A B C

A Group

• Projects sanctioned in an

inflationary world of both

price and cost

B Group

• At Risk- High cost base

projects sanctioned in the

expectation of higher

prices

C Group

• Many cancelled projects

FEED stage projects

seeking to re negotiate

cost to completion

Context


Price per barrel

in 2004 was $45

Project execution needs to capture efficiency gains

from governance and capital discipline

How to close

this gap?

Price per barrel

now BELOW $40

Context: linked to Case study


• At below $40 oil, labour and materials need a drop of 40% to 50% to breakeven.

• These comprise 75% of projects costs - a downward shift in cost of this quantum

will not happen.

• Essential that the industry finds efficiencies elsewhere outside of supply chain.

6

Enhanced Capital discipline & Strong governance are an essential part of the solution

Context


Outside our Control• Capital discipline and strong

governance• Defined Business Processes

for all contractor/operator

interactions.

• Structured Communications

via a single channel.

• Advance Warning Indicators.

• Collaborative Change Control

Management.

• Audit Trail.

Inside our Control

Case study 8over8 & Prelude


• March 2010 - Shell awards EPCI for its first FLNG platform to Technip Samsung

consortium.

• Pioneering project - essential to look at innovative ideas to mitigate against cost

overruns and delays, protect against claims, provide leading indicators and manage all

change order requests.

• 8over8’s Procon selected at Shell’s corporate contractual risk management solution.

• Contract execution best practice business processes embedded in Shell’s corporate

ProCon platform and available to the global Prelude Team.

• 1300 ProCon Users across Shell globally at present.

8

Case study Prelude


Global supply Chain• South Korea - Hull and

Topsides

• Dubai - Turret Mooring System

(SBM)

• Malaysia - subsea Christmas

trees, manifolds, and control

equipment.

• France - Loading Arms ( FMC)

• Spain - Anchors ( Mooring

Chains)

Case study Prelude


• March 2010-EPCI awarded to

Technip Samsung – construction

/installation

• EPCI plus all sub-sea contracts

(FMC,SBM..) awarded by Shell

managed in ProCon

• December 2012- 8over8’s ProCon

implemented

• 14,000 + contractual

communications managed in

Procon

Case study PreludeExample Communication Templates


• Consistent terminology

across all contracts

• Consistent templates

and formats across all contracts

• Consistent reporting

across all contracts

• Reduced administration

for both parties

• Increased clarity

about outstanding issues

and risks between parties

Case study PreludeExample Workflows


Case study PreludeExample Leading Indicators



Enhanced

Capital

Discipline

Manage

Risk

Connect

Decision

makers

Establish

Contractual

Liability

Complete Contract Control

Case study PreludeOutcome


• Enforced Discipline and Transparency

– All contractually significant communications

received, recorded, reviewed, issued via ProCon

– Repeated reminders to respond to outstanding

communication

– All Operator to Contractor communications

approved by single authority (Company

Representative)

– All parties share same database of

communication registers and final decisions

made - single source of truth

• Claims Defence Readiness

– No claims….yet, but

– Complete audit trail of key decisions made

throughout project is available

• Streamlined & Connected Decision Making

– ProCon available and used by all functions for

contractually significant communications:

• CP

• Finance

• Project Services

• Engineering

• Legal

• Stakeholders

• In first 2 years…

– 14,000+ contractual communications

– Approximately 60 Variations managed

15

Case study PreludeOutcomes

16

ProCon preserves the “red

thread” of personal and

corporate responsibility

through the chain of

communications linked to

contract obligations.

Owner

Operator

Pro

Co

n O

pe

rato

r Po

rtal

Pro

Co

n C

on

trac

tor

Po

rtal$

ContractorDISCIPLINE

• Risks

• Reviews

• Schedule

Impact

• Who?

• Responsible

• Accountable

• Consulted

• Informed

• Instructed

• When?

• Compliance

• Supporting

Documents

• Decisions

• Obligations

Independent source of

truth acts to minimize

and defend against

claimsClaims defense – “building a better bundle”

Traceability of every decision, linked to supporting evidence, in context,

and time lined.

Case study PreludeOutcomes

View from the Industry


“The Prelude deployment of ProCon has been a pathfinder for Shell and is the benchmark for other Shell

projects to work against.“

Contracting & Procurement Manager Prelude FLNG

“If communications problems are at the heart of the problems with a project, companies should improve the

governance structure to increase oversight of the construction process.”

PWC (2013) “Correcting the course of capital projects”

“From this categorization, it was noticed that communication ,design, and planning represent the highest

percentage in delay factors.”

Research Paper Adel Al Subaih,( 2015) Senior Project Engineer in ADNOC

“A recent survey of 9 FPSO projects identified a combined 38% cost overrun totalling $2.5bn in wasted capital.

One of the identified causal factors was a "a lack of clarity regarding contract responsibilities."

Douglas Westwood “ FPSO Industry at a Crossroads”

“Samsung has revealed it is expected to make a near $1 billion loss on the Roy Hill project” Various- 2015

Summary


• Large complex capital projects in this low oil price climate require proactive

contract risk management. Improve what is within your control.

• Enhanced governance and strong capital discipline are value adding levers

within your control.

• Standardise on business processes to govern all interactions with contractors.

• Manage all contractual obligations within a common shared platform

with your contractor.

• Establish contractual liability for each change order request AT INCEPTION

of the request.

• Mandate a single communication channel.

• Use Early Warning Indicators to mitigate against risk.

18

Thank You! Questions?


Clare Colhoun CEO 8over8 Ltd. | An Aveva Group Company

M: +44(0) 7748 634748

© 2016 8over8, an AVEVA Group company. All rights reserved. All trademarks herein are the property of their

respective owners. 8over8 and the 8over8 logo are trademarks of 8over8.

8over8.com

@8over8

/8over8

http://www.8over8.com/

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https://www.linkedin.com/company/8over8







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